Law Firm Partner Termination: When And Why?

Firing a partner at a law firm is a complex process that requires careful navigation to avoid legal repercussions. Law firm partners are not employees but co-owners, and their removal typically demands a skilled attorney to ensure a correct and efficient process. While it is rare for a partner to be forced out, it can happen due to criminal activity, malpractice, disruptive mental illness, or failure to contribute to profitability. In some cases, a lawsuit may be necessary for removal, and the remaining partners are obligated to buy out the fired partner's interest.

Can a law firm fire a partner?

Law firm partners are co-owners, not employees, but can be fired

Law firm partners are co-owners of the firm and are not employees. They are entitled to a share of the profits as "equity partners". Senior lawyers who are responsible for generating the firm's revenue are often promoted to this role. While it is rare for a partner to be forced out by fellow partners, it can happen if the partner commits a crime, malpractice, or experiences disruptive mental illness. Some large firms have also written into their partnership agreement a forced retirement age for partners, which can be anywhere from 65 and above.

If a partner is terminated, the remaining partners are obligated to buy out the fired partner's interest. This refers to their original investment in the company plus any capital interest. If there is no partnership agreement in place, it may be necessary to file a lawsuit to remove the partner, which can be expensive. The partner filing the lawsuit must prove the inefficiency of the other partner.

It is important to note that the relationships between partners are covered by business laws, and certain rules can be amended or removed in a partnership agreement. Before starting a business, partners should create a properly written Buy-Sell Agreement, which outlines the expectations for how the breakup will be handled.

Firing a business partner can be complex and requires a skilled attorney to navigate the process successfully and avoid critical mistakes.

Reasons for termination include crime, malpractice, or mental illness

While it is uncommon for a law firm partner to be fired by their colleagues, it is possible, especially if the partner in question has committed a crime, acted with malpractice, or is experiencing a disruptive mental illness.

Crime, in this context, could refer to any unlawful behaviour, including violating disciplinary rules or engaging in unlawful conduct. For example, using firm resources for unlawful purposes, such as evading sanctions or stealing intellectual property.

Malpractice, on the other hand, could refer to any action that falls short of the professional standards expected of a lawyer. This could include a wide range of behaviours, such as failing to conform to the Rules of Professional Conduct, or "dropping the ball" on a case, which could be caused or exacerbated by mental impairments. Alcoholism and substance abuse, for instance, have been identified as significant contributing factors to malpractice claims.

Mental illness, therefore, can also be a reason for termination, especially if it is impacting a lawyer's ability to practice law or is causing them to act dishonestly or untrustworthily. However, firms should be careful to handle mental health issues with accommodation and empathy, as required by laws such as the Americans with Disabilities Act (ADA). They should also be cautious about discussing the effects of an employee's impairment with clients, as obligations to do so do not terminate when an impaired lawyer leaves the firm.

Forced retirement age is sometimes written into partnership agreements

Retirement provisions are a key component of partnership agreements. Most accounting firms and partnerships include mandatory retirement provisions in their partnership agreements, with a general retirement age between 62 and 70 years old. The mandatory retirement age tends to be lower in larger firms. While the average retirement age stands at 67, 65 is still the most common retirement age.

Partnership agreements typically allow for early retirement from ages 55 to 60, provided the partner has a specified number of years of service, such as 15 years. However, early retirement is rarely used, as most partners are not financially ready to retire at this age, and many find themselves to be at their most effective during these prime years.

When a partner chooses early retirement, the partnership agreement should include a lengthy notice period, ideally two years, to allow for the proper transition of clients and firm responsibilities. A transition plan is critical to ensuring the firm retains clients and other skills and abilities of the retiring partner. This plan is developed by the retiring partner in consultation with the managing partner or executive committee, or their respective designee.

To ensure a financially healthy organization during retirement payout, the aggregate amount payable to retired partners each year is capped at a portion of the annual revenue or net income of the firm. For example, retired partners may be paid 4% of the revenue of the firm each year for ten years. Many firms also obtain life insurance on their partners to fund some or all of the buy-out payments.

A lawsuit may be required to remove a partner without a valid partnership agreement

Removing a business partner is a complex process that requires the assistance of a skilled attorney to avoid legal repercussions. If there is no partnership agreement in place, the default legal framework will apply. In the United States, this is typically the Limited Liability Partnership Act 2000 or the Partnership Act 1890.

The absence of a partnership agreement may lead to questions about the existence of a partnership in the first place. In such cases, documents such as signed contracts, business plans, emails, bank statements, and transaction records can be used to prove the existence of a partnership.

If a partnership agreement is in place, it will outline the process for partner withdrawal, including the procedure to be followed, the determination of the purchase price of the partner's interest, and any changes to the partnership following a partner's departure. Common ways for a partner to withdraw include selling their interest to another person, who assumes their rights and responsibilities, or exercising a "right of first refusal," where the remaining partners have the opportunity to purchase the withdrawing partner's interest before it is sold to a third party.

However, if there is no partnership agreement or if the agreement does not cover the specific scenario, options for removal become more limited. In such cases, depending on the state, a partner may be removed for intentional breaches of the partnership agreement, wrongful conduct that harms the partnership, or behaviour that makes continuing the partnership impossible.

If a partner cannot be expelled, the partnership may need to be dissolved entirely, and a new one formed without their involvement, which can be a challenging process. Therefore, it is essential to consult with an experienced attorney to determine the best course of action and ensure that the removal process is handled correctly.

The process of removing a partner is complex and requires a skilled attorney

A law firm partner is not an employee of the law firm but a co-owner of the partnership. They are entitled to a share of the profits as "equity partners". Partners are usually senior lawyers who are responsible for generating the firm's revenue. While it is rare for a partner to be forced out by fellow partners, it can happen if the partner commits a crime, malpractice, or experiences disruptive mental illness, or is not contributing to the firm's profitability. Some large firms have a forced retirement age for partners, which can be from 65 years and above.

If there is no valid partnership agreement, it may be necessary to file a lawsuit to remove a partner. This type of litigation can be expensive, and it can be difficult to legally remove a partner from a company. The partner who files the lawsuit has to prove the inefficiency of the other partner. The remaining partners are obligated to buy out the fired partner's interest, which refers to their original investment in the company plus any capital interest.

The most common result of a business partner breakup is that the business ceases to exist. If it is impossible to remove the partner through litigation or buy out their share, the business may have to be dissolved. This involves selling off all assets, paying outstanding liabilities, and dividing any remaining proceeds between the partners. Given the complexity of the process, it is recommended to seek the help of an attorney who can fight the case and ensure the partner does not resort to any unscrupulous activity.

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